Professor Russell James, J.D., Ph.D., CFP ®of Texas Tech University runs the on-campus and online graduate program in charitable financial planning.
The one that counts
Almost every will document starts with the heading “Last Will and Testament.” This means it is–so far–the latest will a person has signed. But just because it is the latest will doesn’t mean it is the last will a person might sign. In fact, only one will can be a person’s final will. Only this final will can actually control any assets. Because the final will is the one that counts, it makes sense to focus on the timing of this will.
Evidence from Australia.
Last year my colleague and co-author Christopher Baker published the results from an enormous study taking a 5 percent national sample of Australian probate records for estates from 2010. Using this data, we did some addition- al exploration to learn about the timing of the final will decisions. I wanted to know at what age the wills that actually transferred dollars to charity were signed. Only 13 percent of all estate dollars transferred came from wills signed be- fore age 70. In fact, 76 percent of all estate dollars came from wills signed in the 80s or beyond.
Evidence from the U.S.
Unlike Australia, it is nearly impossible to take a national sample of U.S. probate records because these records are kept at the county level. But we do have evidence from a nationally representative study (the Health and Retirement Study) that tracks thousands of older adults’ estate planning during life and connects it with their actual distributions after death. So far, over 12,000 decedents’ estates have been included in this study. Among those who left an estate gift to charity, 65 percent added the gift within the last five years of life. This means they had previously reported not having a charitable component in their estate plan, but then added a charitable component within the last five years of life. Similarly, the Australian study found that 60 percent of wills with charitable gifts were signed within five years of death.
Although people may prepare wills at various times throughout their lives, the final will is most commonly an end-of-life decision. It is easy to fall into ageism and believe that older adults are “cognitively fossilized” and no longer make decisions or change their minds. But this belief contradicts reality. Older adults are not only signing new wills, they are signing new wills with charitable changes. Charitable beneficiaries are not only being added—they are also being dropped.
The U.S. study tracks estate plan changes during life. Among those aged 70 and above who reported having a charitable component in their estate plan, 10 years later only about 55 percent of those still reporting indicated that they still had a charitable component in their plan. This has been a remarkably consistent result tracking ten-year periods from 2002 to 2012 (54 percent retention), 2000 to 2010 (53 percent retention), 1998 to 2008 (60 percent retention), 1996 to 2006 (56 percent retention), and 1994 to 2004 (51 percent retention).
Putting it into practice.
So what does it mean to realize that the final charitable estate decisions (both adding and dropping) are predominantly late life decisions? It means that “count it and forget it” is dead. Charities can count mid-life revocable estate gifts, but without late life stewardship, these will quickly evaporate. It means that ignoring the charity’s oldest friends is ruinous for estate gifts.
Unfortunately, some charities miss out by allowing older supporters to fall off the radar when they stop giving. Among those in the U.S. study who actually transferred charitable gifts in their estate, 68 percent were making cur- rent gifts 8-10 years before the end of life, 65 percent were donors 6-8 years before the end of life, 56 percent were donors 4-6 years before the end of life, and only 52 percent were donors in the final two years before the end of life. Remembering that most charitable estate gifts are added in the final five years of life means charities that ignore their oldest friends when they stop giving will be absent during the most important decision-making time.
It is absolutely critical for charities to stay connected with their oldest friends, whether they are still donors or not. This is especially true because, as shown above, estate plans become unstable at the end of life—resulting in both adding and dropping of charitable components. Staying connected is also important because estate decisions are open to influence.
A study in the United Kingdom last year with 3,000 people going through their regular estate planning process convincingly demonstrated this.2 Among the 1,000 who weren’t specifically asked about charity, only 5 percent left a gift to charity. Among the 1,000 asked about charity, 10.4 percent left a gift to charity. Finally, among the 1,000 asked about charity following the positive statement, “Many of our customers like to leave money to charity in their will,” 15.4 percent left a gift to charity. Thus, a single encouraging statement at the point of decision more than tripled the share of people leaving an estate gift to charity. These results show how important it is to be at the top of the mind in the moment of decision.
In sports, the score doesn’t count until the clock reads 0.00. In law, only the final will counts. For charities that care about estate gifts, sitting on the bench in the fourth quarter of their supporter’s lives is a guaranteed losing strategy.